THE WRONG TOOL FOR THE JOB:

THE IP PROBLEM WITH NON-COMPETITION AGREEMENTS

Viva R. Moffat

Abstract

In this article, I argue that non-competition agreements should be unenforceable. Although various attacks have been launched at non-competes, most of them have been aimed at reforming the doctrine rather than eliminating enforcement of the agreements entirely. This is because the justifications for non-competes have been left mostly unchallenged, and I undertake that task here.

The most problematic and least examined of these is the IP justification: in an increasingly knowledge-based economy, many argue that non-competes are necessary to protect trade secrets and other intangibles or that non-competes provide an incentive for invention and investment, a classic IP justification. Though rhetorically compelling, perhaps, this justification is flawed. First, trade secret and other IP protections are intentionally limited to provide a certain amount of, but not too much, protection. Allowing enforcement of non-competes in order to protect IP interferes with the contours of IP protection. Second, even to the extent that IP law is insufficient – that is, unintentionally limited – non-competes are not the right tool for the IP job. A prohibition on the enforcement of non-competes would thus serve a channeling function, directing efforts to protect intangibles to the IP regimes and encouraging the development of the appropriate IP balance (which is, of course, a work in progress).

Other justifications for non-competes are similarly weak. The general claim of a “business necessity” to guard “protectable interests” is often cited with no evidence to back it up. When there is something more put forth, it collapses into another version of the IP justification and is similarly problematic. Finally, the freedom of contract justification is also rhetorically compelling but at odds with the realities of employment contracting. Combined with the classic critiques of non-competes, the weakness of the justifications for the use of non-competes leads to the conclusion that they should simply be unenforceable.